Royal Dutch Shell has withdrawn from a US$10 billion gas project in Abu Dhabi citing technical challenges and costs.
The company made the disclosure as Brent crude traded near a 12-year low, briefly dropping below $28 per barrel.
Royal Dutch Shell is finalising a plan to buy BG Group in what would be one of the biggest oil and gas mergers in years.
In a brief statement it said it had decided to leave the joint development of the Bab sour gas reservoirs with Abu Dhabi National Oil Company (Adnoc) after evaluating the project.
“The evaluation concluded that for Shell, the development of the project does not fit with the company’s strategy, particularly in the economic climate prevailing in the energy industry.”
Adnoc would need to find a replacement for the project as energy companies struggle to respond to the collapse of the price of oil.
The Bab field is about 150 kilometres south-west of Abu Dhabi city and is the largest onshore field in the emirate based on total area. While it contains both oil and gas reservoirs, its gas is sour. That means it contains a high amount of hydrogen sulphide, which is difficult and expensive to process.
The collapse in the price of oil to under $30, from more than $110 18 months ago, has triggered spending cuts across the industry as oil majors are forced to reassess the viability of projects undertaken in better times.
“The reason most probably is going to be a commercial reason,” said the UAE’s energy minister, Suhail Al Mazrouei, on the sidelines of the World Future Energy Summit in Abu Dhabi yesterday. “The price of gas has dropped by more than 50 per cent. Developing a more expensive solution is not going to be viable at this time. But that is good news also for us because we do not want to develop gas that is more expensive than the gas that we can import.”
He added that the government was working on several ideas about importing liquefied natural gas as well as expanding imports from Dolphin gas project.
“So we are not worried about the supply of gas,” he said.
A Shell spokesman said the decision to exit the Bab project was not related to Shell’s planned £55 billion (Dh288.27bn) takeover of BG, which was announced in April.
That takeover, if it clears final hurdles, will make the combined company the largest publicly listed in the UK.
The spokesman declined to comment on how many of its own or other companies’ employees might be affected by the decision to withdraw from the project but said Fluor was the subcontracted engineering company conducting most of the work at this stage on the project.
It won the Bab concession in 2013 after a lengthy evaluation process, beating BP, ExxonMobil and Korea National Oil Company.
Shell was 40 per cent owner and the operator of the project, with Adnoc’s Gasco subsidiary owning 60 per cent.
It is due to release its latest results tomorrow, the first oil major to report earnings as oil falls further.
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